if the two are provided by a single operator, sharing such facilities as the main fibre optic trunk.
18.
19.
We draw the following three conclusions from Exhibit 1.
(i)
The construction of a second telecommunications network serving parts of the business market would result in expenditure of additional economic resources amounting to 17% of the cost of this second network, when compared with the alternative solution of retaining the telecommunications monopoly. The absolute magnitude of the cost overlap is equivalent to a once-only payment in 1988 of HK$196 million (i.e. a 1988 NPV of HK$196 million).
(ii) The construction of a cable television network separately
from the main telecommunications network would result in expenditure of additional economic resources amounting to 18% of the total cost of the cable television network, when compared with the alternative of building the network within HKT ducts. The absolute magnitude of the cost increment is HK$445 million (1988 NPV). However, this cost increment represents only about 5% of the total costs of providing cable television service in Hong Kong (see para. 39-46 below).
(iii)
The amount saved by combining the second telecommunications network with a cable television network is HK$47 million (1988 NPV). This is equal to 4.1% of total costs of the second network, or less than 2% of the total costs of the cable television network.
We conclude that there is no economic case for awarding the cable television franchise to a company other than HKT in order to facilitate the construction of a competitive second telecommunications network. Such a decision with regard to cable television may be justified on its own merits (see later); however to incur a cost penalty of HK$445 million in order to save HK$47 million from the construction cost of a second telecommunications network would not be rational. This is particularly true since it is the second telecommunications network which is the more promising financial investment (subject to liberalization of existing monopoly arrangements). The viability of the second telecommunications network operation will not depend noticeably on the fact of its common ownership with a cable television network.
DEMAND AND COMPETITION ANALYSIS
20.
Forecast growth in business telecommunications demand greatly exceeds the amount required to finance the construction and operation of a second telecommunications network serving the major business centres. Excluding international services, business telecommunications revenues will grow by a factor of 1.6 between now and 1997, and 2.2 between now and 2007. Taking account of international revenues as well, the growth factors will be 1.7 and 2.8 respectively. The second network would only need to take up approximately 20% (by 1997) and 30% (by 2007) of the
vi